Wyatt Emmerich: Kemper: Taxpayers take all the risk, no upside

Wyatt Emmerich

July 19, 2013 11:49:09 AM

With the latest rate increase caused by the runaway Kemper power plant, Mississippi Power residential customers will be paying 66 percent more for their electricity than Entergy customers in Mississippi.

Assuming an average monthly electricity bill of $100, that's an extra $66 dollars per month that residents in the southeastern third of our state will be paying for electricity. In annual terms, that's an extra $804 a year.

This comes right out of disposable income. It is just like a tax. This extra cost will depress economic activity throughout southeast Mississippi. The entire tax base of Mississippi will be affected for over a generation if the Mississippi ratepayers have to pay for this ill-conceived project.

The Mississippi Public Service Commission (PSC) is supposed to protect consumers from the monopoly status of Mississippi Power. The PSC is supposed to make sure Mississippians pay a fair rate for their electricity.

My question is this: How can the PSC possibly justify any policy that allows one section of the state to pay 66 percent more for electricity than another section?

Mississippi Power Company (MPC) is a wholly owned subsidiary of the Southern Company -- one of the biggest utilities companies in the world with about $17 billion in annual revenue and $3 billion in cash flow.

Southern Company officials have been on a campaign to discredit me and other concerned Mississippians who have been sounding the alarm about the Kemper power plant. No doubt they will dispute my numbers.

Anyone with Web access can go to the U.S. Energy Information Administration Web site and confirm my numbers. Just Google "EIA utility company prices 2011." The first return will be "Electric Sales, Revenue and Average Price 2011." Then click on the "Residential Sector" PDF. Scroll down to the Mississippi utilities.

You will find an $11.40 per kilowatt rate for Mississippi Power. Multiply that by 1.22 to factor in the new Kemper 22 percent rate increase and you get $13.91. Entergy's rate is $8.38.

When the recent Kemper rate increase was announced, Southern issued a press release claiming it was only a 12 percent rate increase. I called them on that and now the new CEO, Ed Holland, admits the increase is 22 percent as I reported months ago. So much for straight shooting.

Holland recently wrote, "Today, we are projecting the increase to be approximately 22 percent for the average retail customer. This increase is well below the outlandish 60 percent predictions made by project opponents, which is an outright misrepresentation of the facts."

Unless Holland is willing to guarantee that there will be no more future rate increases caused by Kemper, I believe it is Holland who is outright misrepresenting facts. The 22 percent rate increase is just the first feeding at the trough.

To fully pay for the $4.5 billion (and still growing) Kemper plant, rate increases of 60 percent could eventually be necessary. State law guarantees utility companies a fair return on any power plant deemed prudent by the PSC.

If you look at the basic rate for electricity, the first Kemper rate increase was actually 45 percent for residential customers. It only becomes a 22 percent increase because over the years, your power bill has all kinds of special charges and add-on fees that Southern got the PSC to approve. These are costs that have little to do with the actual cost of generating electricity.

The Kemper power plant is not prudent. Mississippians trapped by the power company monopoly should not be forced to pay for it. During the time Kemper was proposed, Entergy bought two natural gas plants of greater power producing capacity for about one twentieth the cost of Kemper.

It would not be unusual for government to pay double for something. But paying 20 times more than was necessary surely is some kind of all-time record for inefficiency.

In full-page ads across the state, Kelley Williams and I were personally criticized for our Kemper opposition. Yet the ad failed to dispute a single one of the cold hard facts about Kemper.

Instead, the ad stated Kemper was needed for "fuel diversity" because of the volatility of natural gas prices.

It isn't so. Natural gas prices have been very stable over the last 40 years, the projected life of the Kemper plant. Adjusted for inflation, the average price of natural gas over the last 40 years is $4.84. In 2012 it was $3.53. With the invention of fracking, natural gas prices are projected to be lower for the foreseeable future.

The pro-Kemper ad showed an ominous spike in natural gas prices to $11 in 2005 and $12 in 2008. The 2005 spike was caused by hurricanes Katrina and Rita. The 2008 spike was caused by hurricanes Ike and Gustav. The hurricanes temporarily shut down Gulf Coast offshore rigs, causing prices to briefly spike.

For the Kemper plant to make sense, natural gas prices would have to be well above the hurricane spikes for the next 40 years. This is an outlandish projection on which to bet $4.5 billion.

Furthermore, Kemper requires natural gas to operate. It uses 30 percent as much natural gas as a simple natural gas plant. This guts the essence of the diversity argument.

In 2010, all three PSC commissioners -- Brandon Presley, Leonard Bentz and Lynn Posey - denied Southern a permit to build Kemper. In the decision, they wrote, "This order has explained how Kemper's unprecedented scope, cost and uncertainties pose unprecedented risks to MPC's ratepayers."

They were right. So what happened? After writing a 65-page denial of Kemper in April 2010, how could Bentz and Posey change their minds one month later? How do you go from "unprecedented risks" to approval in one month?

That's the question the Mississippi Supreme Court wanted to know when they overruled PSC's grant of the Kemper permit in a 9-0 decision. Let's hope the Supreme Court continues their scrutiny of this boneheaded boondoggle.

MPC didn't need a new power plant. Its electricity consumption has never exceeded its generating capacity. If it did, MPC can buy power from dozens of existing plants throughout the South for 50 percent less than the cost of their own plants. Kemper is just a way for Southern to make more money because they get a guaranteed rate of return on anything new they build. It is a screwed-up system.

In a display of amazing hubris, Southern proceeded with the construction of Kemper while the permit was still under appeal. Now $4.5 billion later, Kemper's permit status is still in limbo. This means the ratepayers of Mississippi have an excellent chance of not being saddled with Kemper for the next 40 years.

How big a deal is this? If you divide Kemper's $4.5 billion by its 186,000 customers, the cost comes to $24,000 per customer.

Some have compared Kemper to Grand Gulf, but the comparison is false. Nuclear was a proven technology. Grand Gulf's cost overruns were caused by new federal regulations in the wake of the Three Mile Island meltdown. Most importantly, Grand Gulf's costs were spread over multiple states -- not just one section of the poorest state in the nation like Kemper is.

In the 2010 PSC denial of Kemper, the commissioners wrote, "There are five IGCC plants in the world running on coal today, of which two are located in the United States, and none has exceeded 300 MW in overall plant size. None of the existing IGCC plants use lignite as a fuel source. None of the existing IGCC plants use TRIG as a gasification technology. TRIG is not in commercial scale operation today for the generation of electricity. Neither MPC or Southern have ever built or operated a commercial scale IGCC electric generating plant.

Kemper is experimental three times over. The size is experimental. The lignite is experimental. And the TRIG technology is experimental. Is it any wonder Kemper just reported $700 million in cost overruns caused in part by the installation of the wrong size pipes?

And if by some miracle it works, guess who gets the patents? Southern. And if it fails guess who pays the bills. Us.

Kemper is way for Southern to make money. Mississippi ratepayers just want lower electricity bills. They didn't sign up for this venture capital gig. Southern Company's 500,000 shareholders should foot this bill. Not us.